RPS Area President James McNitt says that economic inflation is particularly troublesome for healthcare insurers, especially given the delayed impact of claims on insurers books of business.

"When you look at claims-made policies, which are around 90% of what we do, we usually see around a four-to-six-year lag on these claims being reported," he says. "But the problem is that when insurers collected the premiums to pay these claims five years ago, the value of the dollar was much less than what it is today.

"This disparity means that insurers haven't collected enough premiums to pay those claims — sometimes as much as a 10% to 15% difference, and that's a mega-difference on a large book of business."

Social inflation is also impacting business, and RPS Senior Vice President Margaret Jacobs says social inflation is one reasons carriers are withdrawing from some areas of the market.

"Certain venues within the market are presenting difficulties when it comes to social inflation and claims inflation," Jacobs warns. "Insurers are looking at this situation when setting their reserves, and some are stepping back from the market as a result of what they're seeing."

Despite the cost challenges facing the healthcare insurance market, McNitt argues that citing economic inflation as a reason for raising premiums is a difficult proposition for insurers, but says that the combination of economic inflation and social inflation means that price increases are inevitable.

In the hospital space, for example, Jacobs says that price increases could rise by as much as 15% next year. "While this increase is less than the 20% increases we saw last year, the important thing to remember is that hospital exposures have gone down," Jacobs says. "So when you take that into account, these price increases might actually be more than you think."

Despite the increase, some carriers in the market are still pricing for market share — particularly in areas such as senior living — even in the face of the long-term difficulties insurers are experiencing when it comes to profitability.

And this irrationality means that several carriers are pricing risks that they shouldn't be quoting for, which is a concern for the industry.

"There's not a bright future for profitability in the sector, and many of the senior living facilities are also facing their own challenges," McNitt points out. "But they're still being rated as if times are good, and carriers are still being competitive on price.

"For some, this has led to a race to the bottom on price, as they look to bring in additional premiums to pay for historic claims, but this practice will create additional challenges for the future."

Learn more about what's next for Healthcare Liability in the RPS 2023 US Healthcare Market Outlook.

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